Russia and the European Union have approved talks on a new Partnership and Cooperation Agreement (PCA) at their summit in West Siberia's Khanty-Mansiisk, which was marred by scandal.
Estonian President Toomas Hendrik Ilves called on Russia's small nations to opt for the path of self-determination at the congress of Finno-Ugric peoples.
Ilves said during his talks with Russian President Dmitry Medvedev, the first Russian-Estonian meeting in the last 14 years, that public rhetoric should be toned down in bilateral relations.
However, he failed to take his own advice at the Fifth World Congress of Finno-Ugric Peoples held after the Russia-EU summit.
"We [Estonians] have opted for freedom and democracy. Many other Finno-Ugric nations have yet to make their choice," the Estonian president said.
Konstantin Kosachev, chairman of the international affairs committee at the State Duma, the lower house of Russia's parliament, interpreted Ilves's words as an appeal for self-determination.
He said a president "who sees no difference between international and national policies" is not living up to the office.
The Estonian delegation walked out after Kosachev's speech about restrictions on the rights of Russian speakers in the Baltic States.
"Now our presidents will not meet for another 14 years," said a Russian delegate.
Valery Tishkov, director of the Institute of Ethnic and Anthropological Studies at the Russian Academy of Sciences, said the idea of the Finno-Ugric world is politically vulnerable.
"These people constitute the bulk of the population in Hungary, Finland and Estonia, but a minority in Russia," Tishkov said. "In principle, the position of Finno-Ugric nations in Russia is not as catastrophic as some people claim. They enjoy all forms of interstate self-determination, including ethnic autonomies and state support in social programs, culture and education. The [Estonian president's] idea of self-determination, to form a separate state, is a covert call for secession. The Estonian authorities do not provide this form of self-determination to Russian speakers or minority Finno-Ugric groups."
Konstantin Voronov, senior researcher at the Institute of World Economy and International Relations of the Russian Academy of Sciences, said: "There is no political problem here, let alone an acute one. This is a sleeping problem which our Estonian partners perhaps like to politicize."
Dmitry Suslov, deputy director for research at Russia's Foreign and Defense Policy Council, said: "The scandal cannot seriously affect Russian-Estonian relations, because they are not at their best now after the Bronze Soldier scandal."
In April last year, the Estonian authorities relocated the Bronze Soldier, a Soviet-era war monument, from central Tallinn and exhumed the remains of Soviet soldiers ahead of Victory Day, which is marked on May 9 in Russia. Over 1,000 people were arrested in protests against the move, and one Russian was killed.
However, this is a fresh blow to the possibility of normalizing relations between the two countries, Suslov said, adding, "Estonia could hamper the new PCA talks and draw out the ratification of the agreement."

RBC Daily

Ukraine's presidential contenders on parade in Moscow

Prime ministers Vladimir Putin of Russia and Yulia Tymoshenko of Ukraine held talks in Moscow over the weekend. The two unexpectedly displayed an ability to agree on three key issues: gas prices for Ukraine, Russia's Black See Fleet in the Crimea, and Ukraine's likely NATO membership.
Tymoshenko's supporters have described them as a "summit of future presidents." Skeptics, however, remind us that Viktor Yanukovych will arrive shortly in Moscow for a similar "going-over."
Putin suddenly announced that Moscow would like to see a gradual adoption of European prices, although suppliers from Central Asia want them introduced as early as January 1, 2009. The Russian prime minister's words can be taken as an intention to subsidize the Ukrainian economy with lower gas prices.
That was why Tymoshenko made an accommodating statement on the Black Sea Fleet and showed flexibility concerning Ukraine's NATO entry by promising a referendum.
A source in Putin's office said that the constructive mood was the main outcome of the meeting. "At last there is an understanding of the need for two-way dialogue to solve existing problems," he said.
Expert views on the meeting's results differ. "Russia lacks a long-term and detailed strategy on Ukraine," said Konstantin Simonov, president of Russia's Center for Current Politics. Russia has not betted on Tymoshenko as a future presidential candidate. "No one knows who is better: Tymoshenko or Yushchenko," the expert said. He believes both are worse. He thinks the two are unpredictable, being "typical elements of Ukrainian political culture."
Nor does Konstantin Zatulin, first deputy chairman of the State Duma's committee on CIS affairs and ties, advising against rushing to decide on Ukrainian presidential candidates. "Tymoshenko tells Russia and the West what they expect her to say, no more," he said.
Andrei Yermolayev, president of Kiev's Sofia Center, believes Moscow considers Tymoshenko a promising politician, "The Kremlin is interested in replacing the ruling group in Ukraine," he said. "But it is an open question on whom Moscow will place its bet. To gain greater weight with the Ukrainian political elite Moscow would be well advised to wait a bit, as its talks with Tymoshenko are just a trial run."
Sources in Kiev say another of Ukraine's presidential hopefuls plans to visit Moscow in the next two weeks - Viktor Yanukovych.

Vedomosti

Gazprom wary of transferring oil licenses to its subsidiary

Russian energy giant Gazprom will not sell its oil licenses to its subsidiary Gazprom Neft as long as it has Italy's Eni among its shareholders.
Gazprom CEO Alexei Miller said the priority condition for transferring oil licenses to Gazprom Neft was to execute the call option with Eni.
He and other Gazprom officials did not specify why this is so important.
At present, Gazprom has a qualified majority in Gazprom Neft and the buyout price for Eni's 20% stake in the oil producer, $3.7 billion plus interest, was set in 2007 and is not dependent on the growing value of its subsidiary.
The gas monopoly is just being cautious, two Gazprom managers say.
Gazprom and its gas subsidiaries own about 30% of Gazprom Neft's reserves: 553.8 million tons (4.07 billion bbl) of ABC1 reserves. Gazprom Neft holds 1.4 billion tons (10.29 billion bbl), together with its 50% stakes in Slavneft and Tomskneft.
Denis Borisov, an analyst at the Solid investment financial company, said Gazprom's licenses would increase the oil subsidiary's capitalization by $10 billion from its current value, $37.93 billion.
He said this would not detract from Gazprom's value, because the market would assess the effectiveness of the gas monopoly's oil business only after it is consolidated in Gazprom Neft.
Italian energy corporation Eni bought a 20% stake in Gazprom Neft in spring 2007 at an auction held to sell the assets of bankrupt oil company Yukos. It gave Gazprom a call option to buy out the stake until April 2009.
Gazprom CEO Miller said they would exercise the option by that deadline, adding that Gazprom Neft would remain a public company after the transaction.
Alexander Dyukov, president of Gazprom Neft, said the other day they expected to take over Gazprom's oil licenses by the end of the year. This could be achieved through contribution to the authorized capital (as payment for an additional share issue), sale, or direct transfer, he said.
According to Miller, the form of transfer will be chosen only once the deal with Eni has gone through.
Gazprom Neft is the fifth largest oil company in Russia. In 2007, it produced 43.2 million tons (317.52 million bbl) of oil together with Gazprom's licenses, and plans to increase the output to 100 million tons (735 million bbl) by 2020.
Its 2007 capitalization was $37.9 billion, US GAAP revenue $21.1 billion, and net profit $4.1 billion. Its main shareholders are Gazprom (75.7%) and Eni (20%).

Kommersant

Russian Technologies withdrawing non-core assets from AvtoVAZ

Russian state corporation Russian Technologies, which develops, produces and markets high-tech industrial products, is set to establish a holding to produce car components, and that will comprise part of the assets of AvtoVAZ, Russia's largest carmaker, KAMAZ, the largest national truck producer, and SOK Group.
Troika Dialog brokerage will finance the project, due to be managed by Vladimir Avetisyan, a former senior executive at utility giant Unified Energy Systems.
The partners want to set up a company that will control 40% of the Russian car-component market worth at least $4.5 billion. AvtoVAZ will hand over non-core assets to the company in order to clean up its own balance sheets and to cut back on production costs.
The new company could receive AvtoVAZ and KAMAZ car-component divisions, setting up other production facilities with foreign and Russian partners.
Russian Technologies CEO Sergei Chemezov said an alliance involving French and Japanese automakers Renault and Nissan was evaluating cooperation prospects. Renault currently owns a blocking stake in AvtoVAZ.
Mikhail Pak, an analyst at Metropol Investment Financial Company Ltd., called the project interesting. He said competition was low on the Russian car-component market, and that some segments were posting 40% profits.
"Not a single global automaker produces car components," Mikhail Blokhin, executive director at the National Association of Manufacturers of Auto Components (NAPAK), told the paper.
Russkiye Mashiny (Russian Machines), the automotive unit of the holding company Basic Element, controlled by business oligarch Oleg Deripaska, prefers to cooperate with Canada-based Magna International, one of the top five car-component suppliers in the world.
Sollers, formerly called Severstal Auto, a division of Russian metals giant Severstal, owned by billionaire Alexei Mordashov, produces UAZ SUVs and cooperates with South Korea's SsangYong and Fiat of Italy.
Although both companies are aware of the car-component market's future, they have decided to set up specialized joint ventures with foreign partners.
KAMAZ, German gear maker Zahnrad Fabrik, U.S.-based company Cummins producing diesel and natural gas engines and Germany's Knorr-Bremse, the leading worldwide supplier of braking and control systems for commercial vehicles, have set up a joint venture producing gear boxes, engines and braking systems.
However, not a single company has announced the creation of an integrated car-component holding.
Sources close to Russian Technologies and AvtoVAZ said the politically motivated project had fewer business aspects, and that plastic, die-cast parts and lighting systems were among the high-margin segments.

Business & Financial Markets

Gazprom may build natural gas filling stations in Europe

Russian energy giant Gazprom hopes to convince its European partners to jointly build a network of natural gas filling stations. Gazprom CEO Alexei Miller said natural gas could be a suitable alternative to gasoline and diesel fuel.
Experts say the company may build its first gas filling stations in Germany or Italy.
Miller said: "The attempt to replace traditional gasoline with biofuels has pushed the world toward a food crisis. But natural gas, especially given the growing prices of traditional fuels, is a realistic alternative. Cars using traditional fuels, for example in Germany, spend 70% more on fuel than gas-fuelled vehicles."
Many EU countries are implementing special state programs to encourage transition to gas-fuelled vehicles.
Alexander Shtok, director of the Due Diligence department at the 2K Audit Business Consultations, an independent consultancy, said: "Last year, the global consumption of natural gas by vehicles rose by 30%. The growth was the highest in the EU. Europe plans to replace up to 10% of motor fuel with natural gas by 2020."
Analysts say Gazprom's partners in this project could be Germany's BASF and E.ON and Italy's Eni.
Dmitry Lyutyagin, an analyst at the Veles Capital investment company, said: "The project will most likely start in Germany. Germans watch their spending closely, and are happy to convert from expensive gasoline to cheap natural gas."
The European authorities, which have hampered Gazprom's access to end consumers, may also block the idea of natural gas filling stations.
"This is a highly promising market that could become an alternative to the gasoline market, if not replace it," said Shtok. "Therefore, the EU may choose to block the advance of an influential foreigner to this market."
However, Lyutyagin said the natural gas filling business is quite competitive and therefore the implementation of the project looks more likely than the acquisition of energy assets in Europe.
Vitaly Kryukov, an analyst at the Kapital investment group, said Gazprom could get assistance from its European partners interested in long-term cooperation with the gas monopoly.

Vedomosti

Alrosa wants to sell its oil and gas assets in West Siberia

Russia's diamond monopoly Alrosa is looking for buyers of its two oil and gas assets in West Siberia - Geotransgaz and the Urengoi gas company. An Alrosa employee and an investment banker familiar with the terms of the transaction told Vedomosti that US-based J.P. Morgan was helping it in the search for buyers but did not name the candidates. One of them said that Gazprom was not among them. Alrosa and J.P Morgan's spokesmen declined to comment.
The two companies' total reserves are estimated at about 1 billion barrels of oil equivalent, the investment banker said. Denis Borisov of the Solid investment and financial company said that they could be sold for about $400-700 million. By 2012, gas prices in Russia should have virtually doubled. Borisov thinks that these assets are of interest to companies which have access to Gazprom pipelines, such as Itera and Novatek. Itera's spokesman declined to comment and Novatek could not be contacted.
Alrosa bought gas assets in 2005-2007 and it spent over 14 billion rubles ($596.76 million) on them. It acquired 100% of New Technologies Holdings Ltd (which held a 90% stake in Geotransgaz) and a controlling stake in Rolant Investments Ltd, which had four assets with licenses for gas-bearing areas: 100% of PIT Sibintek, 90% of the Urengoi gas company, 65% of Kupol-NG, and 41% of Severnaya Ekspeditsia (Northern Expedition). In 2006, Alrosa sold Kupol-NG and Severnaya Ekspeditsia for 1.3 billion rubles ($55.41 million). It also sold New Technologies to an investment bank for $140 million, but planned to buy it back. According to an Alrosa spokesman, this was a transaction within the Alrosa group.